Supplementary Payments - No Obligation to Cover Attorneys Fees for Non-Covered Claim
California courts have been busy on insurance coverage decisions – and I am having trouble keeping up! Be ready for several posts.
An excellent (and correct) decision was issued from California’s Appellate court as to when there is an obligation to pay attorneys fees awarded against an insured pursuant to the supplementary payments provision of a general liability policy. In State Farm General Ins. Co. v. Mintarshi (2009) 175 Cal.App.4th 274, the court held that it is only where the attorney fee award is based on a covered claim that there is a duty to pay the “costs awarded” against the insured.
The supplementary payments provision provides that the insurer will pay “costs taxed against the insured” in “any suit we defend.” Under California law, where there is a duty to defend any one claim, there is a duty to defend the entire case. Buss v. Sup. Ct. (1997) 16 Cal.4th 35, 48-49. That duty is implied in law. Id. The insurer can reserve its right to seek reimbursement for amounts it pays in connection with the non-covered claims. Id.at 50-53.
Until now, this unanswered question troubled insurers and caused some to consider deleting this aspect of supplementary coverage because attorneys fee awards (on non-covered claims) can far exceed the value of the covered claim. This question was narrowed a few years ago when California’s appellate court ruled there was no obligation to pay an attorneys fee award based on a non-covered claim that was uninsurable because of willful conduct excluded pursuant to Ins. Code Section 533. See Combs v. State Farm Fire & Cas. Co. (2006) 143 Cal.App.4th 1338, 1344-1346.
Thus, if at the end of the case the claimant is awarded attorneys fees against the insured, if that award is based upon a claim not covered by the policy, there was no contractual obligation to defend that claim, only an implied in law duty. As such, the court reasoned, there should not be any obligation to cover attorneys fees relating to an aspect of the lawsuit that there was no duty under the contract to defend. To the extent Prichard v. Liberty Mutual Ins. Co. (2000) 84 Cal.App.4th 890, 912, suggested a different result, the court declined to follow Prichard.
